BEIJING, February 1 (TMTPost)-- New signs suggested the U.S. Congress is considering expanding outbound investment restrictions which target sectors including artificial intelligence (AI), part of efforts to further counter growing Chinese high-tech industries.

Credit：Visual China

The House Financial Services Subcommittee on National Security, Illicit Finance, and International Financial Institutions, held a hearing to find better ways to impose restrictions effectively. In his opening marks of the hearing entitled “Better Investment Barriers: Strengthening CCP Sanctions and Exploring Alternatives to Bureaucratic Regimes”,  the subcommittee Chairman Blaine Luetkemeyer noted foreign companies continue to make substantial investments into China and the U.S. Congress must make sure those investments do not harm the security of the country and its allies, meanwhile, the United States cannot undermine the importance of a free market economy. Luetkemeyer said it is critical to find the right balance between protecting Americans and its allies from the threats posed by countries including China, while also promoting a global market that allows our economy to thrive, without creating a sprawling new bureaucracy.

The latest discussion underlined U.S. lawmakers are struggling to reinforce restrictions investments and exports to China following a relevant order released almost half-year. U.S. President Joe Biden signed an executive order on August 9 2023 to impose restrictions on American investments in so-called sensitive technologies, citing national security threats. The order was widely deemed as the new effort to prevent technologies and money from the United States flowing to China. Under the order, Biden asked the government agencies to issue regulations to prohibit United States persons from engaging, directly or indirectly, in transactions that are determined by the Secretary of the Treasury, the Secretary of Commerce and other heads of relevant agencies as those posing a particularly acute national security threat, and regulations which could prohibit Americans from knowingly directing prohibited transactions.The Secretary of the Treasury may require, following new regulations, prohibit and prevent any transaction by a foreign entity controlled by United States person who engages in prohibited transaction.

The order defines covered national security technologies and products as semiconductors and microelectronics, quantum information technologies, and AI sectors that are critical for the military, intelligence, surveillance, or cyber-enabled capabilities. And the entity means a partnership, association, trust, joint venture, corporation, group, subgroup, or other organization; which suggests the order effectively targets investments by U.S. private equity (PE) and venture capital firms as well as joint ventures in semiconductor, quantum computing, AI and other key strategic technologies, in which China is ratcheting up efforts to drive the development.

At the hearing Tuesday, Representative Luetkemeyer said President Biden’s executive order last August “could be improved through legislative action”. The House Representatives and expert witnesses agreed: sanctions and entity-based approaches are more effective, immediate, multilateral, and stronger than bureaucratic and slow sector-based approaches at cutting off western financing for China’s military-industrial complex. Representative Joyce Beatty pointed out that “while there may be varying approaches, there is a strong bipartisan, bicameral support for outbound investment screening”.

Expert witness Thomas Feddo, the founder of the Rubicon Advisors and a former assistant secretary of the treasury for investment security, said sectoral restrictions—those that focus on a particular technology or industry—are “slow and resource intensive,” whereas a focus on blocking specific entities from the U.S. financial system is “immediate and very efficient.” “Establishing a unified definition of ‘critical technology’ and grounding that definition in well-defined export control lists such as the Commerce Control List and the United States Munitions List created clear, specific, updatable mechanisms for regulators to target specific threats,” another witness Richard Ashooh, vice-president of the Lam Research Corporation, a supplier to the semiconductor industry, said.  

China’s foreign ministry said in August that the country was "strongly dissatisfied" with and "resolutely opposes the U.S.'s insistence on introducing investment restrictions on China", having also lodged solemn representations with the U.S. The Chinese Commerce Ministry urged U.S. to respect laws of the market economy and the principle of fair competition, and refrain from "artificially hindering global economic and trade exchanges and cooperation, or set up obstacles for the recovery of the world economy".

The restrictions will not have any meaningful impact on Chinese companies because the development of China’s industries now relies less on the United States, and China is not particularly short of funds at the moment as a number of domestic major companies are actively investing in key sectors, commented Xiang Ligang, director-general of Information Consumption Alliance, a Beijing-based telecom industry association, according to Chinese state-backed newspaper the Global Times in August.

The U.S. Congress has introduced three major bills regarding curbs on China. Two of them are House bills, including one by Representative Andy Barr, a Kentucky Republican, that aims to prohibit nearly all economic interactions with Chinese firms crucial to China’s defence and surveillance technology sectors, and the bill, introduced by Representatives Michael McCaul, Republican of Texas, and Gregory Meeks, a New York Democrat, would build upon Biden’s order by expanding the restricted tech sectors to include hypersonics and high-performance computing. And the Outbound Investment Transparency Act in the Senate was introduced to require American companies to notify the Treasury Department before making investments in certain sectors.